Lecture Notes ALL OF THEM - Innovation Management PDF

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GM0421 – Innovation ManagementLecture NotesCONTENT LIST:LECTURE 1: Innovation – what is it and why it matters? What is Innovation? – desirability, viability, feasibility – reduction to practice Dimensions of innovation – product (refrigerator), process (lean-manufacturing), position (Marlborough man...

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GM0421 – Innovation Management

Lecture Notes

CONTENT LIST:

LECTURE 1: Innovation – what is it and why it matters? -

What is Innovation? – desirability, viability, feasibility – reduction to practice Dimensions of innovation – product (refrigerator), process (lean-manufacturing), position (Marlborough man), paradigm (IBM – selective attention) Degree if innovation – incremental, breakthrough, radical – golden ratio Macroeconomic perspective & firm perspective

LECTURE 2: INNOVATION CONTEXT AND INNOVATION AS A CORE PROCESS -

Boston Ice King – innovation and creative destruction Schumpeter – creative destruction in economy Disruptive technologies – crunchyroll→ Netflix vs. blueray & DVD Drivers of Innovation – technological advances, competition, environment, customer needs Patterns of Innovation – creative destruction – periods of growth disrupted (technology s-curve Overlapping s-curves – hybrid cars Dominant design – QWERTY How to get to a dominant design

LECTURE 3: BUILDING AN INNOVATIVE ORGANIZATION -

The innovation problems (lamp post, messenger, rewiring, balancing problem) Good performance: leadership, vision, structure, key individuals, effective teamwork, high involvement innovation, creative climate, external focus Ambidextrous organization, exploitation vs. exploration 4 strategies to ambidexterity – structural, temporal, contextual, domain separation Fit with organization’s processes vs. fit with organization’s values Stop the innovation wars: Divide the work: skills needed + match with performance engines skills?

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Dedicated team: Insiders vs. outsiders, team structure, incentives Managing strains: mutual respect, conflict resolution, shared attention Leadership paradox: today or for tomorrow? Factors leaders should focus on: heterogeneity in teams, reward etc. Culture of Innovation – battle at Trafalgar Rules of an Innovative Environment

LECTURE 4: GENERATING INNOVATIVE IDEAS -

Where does innovative ideas come from: internal employees 80% Which stakeholders are important for coming up with innovative ideas? How can managers nurture creativity? Knowledge domains, motivation & passion, time to immerse, avoiding personal uncertainty Positive & Negative moods Nurturing team creativity Avoid: group think, siege mentality, means vs. ends Search strategies for Innovation and innovative ideas: scouts, exploring multiple futures, active & lead users etc.

LECTURE 5: IMPLEMENTING INNOVATION -

Innovation & project uncertainty Innovation project loosely defined, experimental, trust, fail smart, need to be sold to sponsors Processes that stifle innovation – stage gate projects, no reward, strict rules of outcome Traditional Pm vs. Agile project management, EX. IDEO Scrums and sprints Advantages & Limitations of Agile PM How to implement innovation to the company? → Anticipate resistance Unmask Political motives – strategy, me-first motivations Find the right Champion - veteran Secure social proof – fanclub Legitimacy – external & internal, customers How to gain support for idea? → conform to the environment, select among environments, manipulate environments, build a passionate collective Stakeholders! Need to balance – being ambidextrous: responsibility fizzles out vs. centralization isolates Developing strategy by trial and error Operate with something old and something new Integrate with autonomy

LECTURE 6: DEVELOPING AN INNOVATION STRATEGY -

Minimills vs. integrated steel manufacturers Technology s- curve – dilemma zone Why is transitioning creating a dilemma zone? Not in line with institutionalized practices, opposition when hurt interests, violate existing thoughts and actions, sunk costs, no shared understanding

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Blue Ocean Strategies Innovation strategy – determining motivation – crisis mode (IBM), evolution (Google), Staying ahead (Apple) 3 fundamental innovation strategies: need seekers (P&G), market readers (Catepillar), technology drivers (Samsung) – not mutually exclusive Tools for strategic analysis – scenario planning, strategic landscape, road mapping (goes on outside the firm) 3 horizon model

LECTURE 8: OPEN INNOVATION -

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Closed vs. Open innovation P&G from closed to open Play chess – closed, play poker, open! Logic of Open Innovation – not all smart people work here, play poker & chess to capture false negatives, manage IP – accessing knowledge & profit licensing, no monopoly on good ideas! Phillips open innovation journey Choose the right hunting ideas – which parts to open up – not all! With whom to hunt strategic partners, which tools needed? Methods and systems for open innovation – Innocentive, Nine sigma Modes of open innovation Benefits and Challenges of Open innovation Why collaborate with start-ups? – skills, new markets, return on R&D investment Pros & Cons with startups – culture, speed in decision making, coordination etc. Idea of open innovation moving – from corporate ventures to ecosystem innovation

LECTURE 9: INNOVATION PERFORMANCE AND INTELLECTUAL PROPERTY -

Which companies are really innovative? Measures of Innovation: input (R&D), output (number of patents), ratio (input to output) Choosing performance measures: strategy, simplicity, actionability, validity etc. Innovation audits Intellectual Property – appropriability Patenting – protection vs. disclosure Secrecy vs. patents Applying for patents Patents – companies and the world Limits of IP rights – cost of search, registration, enforece etc. Trademarks First and second mover advantage - pros and cons (in relation to the s-curve) First mover pros: brand reputation, network effects, scarce assets, technology advance Two industry situations – product is expensive, scale of economies, patents are working, Late mover advantage: avoid first-mover mistake, take advantage of R&D investments, leapfrog on technology, take advantage of infrastructure, mature eco-system

LECTURE 10: INNOVATION DIFFUSION -

Why diffusion interesting? – 80% new ventures fail in the market Segway & Amazon fire phone Innovation adoption vs. Innovation diffusion Innovation adoption (individual level) – knowledge, persuasion, decision, implementation, confirmation, qualifiers Innovation diffusion – innovation itself, communication channels, time, social system The innovation itself – relative advantage, compatibility, complexity, trialability, potential for reinvention, observed effects Innovation adoption curve – Innovators, early adopters, early majority, late majority, laggards P&L and adoption Early vs. Mainstream market – visionaries vs. pragmatists Chasm! Problems with the chasm: catch 22 How do you cross? Shotgun approach vs. beachhead approach Beachhead approach – select a point attack, attack with overwhelming force, move outward from the point of attack to other targets to capture center Critical success factors when choosing beachead segment The whole product solution – buyer utility map Other decisions – partners and allies, sales channels (nespresso) Why crossing chasm not intuitive? – risk averse, spread too thin, too much on advertising Crossing the chasm – one segment and dominate, complete product, segment influence adjacent Disadvantages of Innovation diffusion

LECTURE 11: BUSINESS MODEL INNOVATION -

Value proposition – relevancy, quantified value, unique differentiation Fit between product and customer jobs Value proposition canvas Jobs to be done? Milkshake – why hire a milkshake? Business Model Innovation – additional value through BM innovation How to appropriate value? Change around and see BM= create, deliver, capture value Business model canvas = common language Characteristics of a good BM: internal consistency, external consistency, imitation, holdup, slack, substitution Business model risks – one way of looking at robustness Two critical tests: narrative test & number test When is a new business model needed? – Business model Innovation Solutions – value proposition, new operating model, capture margins Resource driven, offer driven, finance driven, multiple epicenter driven business models Why BM innovation fail? Ceo not want, product is king, line exectuives hold paycard etc. Three stages of BM journey – creating, sustaining innovation, efficiency 10 tips for business model innovation

LECTURE 1: Innovation – What it is and why it matters? CHAPTER 1: WHAT IS INNOVATION AND WHY DOES IT MATTER? What is innovation? -

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The creation of a new idea and its reduction to practice and it includes all the activities required in the commercialization of new technologies An innovation is the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations. Something new, as a product of imagination or a device or process originated after experimentation…and what is an invention?

Innovation = feasible idea + business model + customer value IDEO: Desirability (human – do consumers want the product) + Viability (business – can we make money of off it) + Feasibility (technical – do we have the know how that is needed) = these three needs to be in place for innovation to happen!!

Dimensions of innovation: -

Underlying process – search for ideas, processes for managing innovation Dimensions – new products, process innovation, new services, business processes, new business models Outputs – commercial innovation, ex. The place where people are willing to buy your products etc.

Dimensions of “innovation space” -

Product: changes in the things (products/services) which an organization offers (ex refrigerator) Process: changes in the ways in which they are created and delivered (ex. lean manufacturing Japan) Position: changes in the context in which the products/services are introduced (Marlborough man – they repositioned themselves from stay-at home moms to men) Paradigm: changes in the underlying mental & business models which frame what the organization does (IBM – selective attention)

Ten types of innovation: -

Configuration: Network, process, profit model and structure Offering: Product system, product performance Experience: Service, channel, customer engagement, brand

Definitions of different types of innovation in this course: Coffin and Mitchell, 2017 (book)

Degree of innovation:

Incremental innovation: Improvements to existing products, services and process (etc), 70% Breakthrough innovation: new products or service with unique features that provide real benefit to customers, 20% Radical innovation: Develops products , services for markets that do not yet exists. 10% The golden ratio (investment percentage) : 70 + 20 + 10 = balance in the innovation game

Why does innovation matter – macro perspective: -

At a macro-economic perspective (societal), the capability to innovate fuels countries’ global competitiveness It is a main driver of economic progress and social well-being. It is a powerful tool to tackle societal challenges from resource scarcity and global warming to poverty and health. Indeed, innovation has become a central pillar of national and regional economic policies The economist William Baumol points out in his book The free market innovation machine “virtually all the economic growth that has occurred since the eighteenth century is ultimately attributable to innovation”.

Why does innovation matter – company perspective: -

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A BCG survey revealed in 2014 that 74% of 1500 senior executive agreed that innovation is a top strategic focus for their firms. They feel that innovation provides strategic value and is a key differentiator because it can: Increase revenues

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Decrease costs through increased efficiencies Reduce competitive and financial risk Create better positioning and performance outcomes Lead to higher levels of customer satisfaction Elevate employee behaviors and actions beyond that of competitors, which are not capable of being imitated by competitor.

LECTURE 2: Innovation context and innovation as a core process Frederic Tudor – The boston “Ice King” -

Trip to Cuba and Southern US inspired his business idea Harvest, transport and selling ice in regions with tropical climate?? In 1806, formed the Tudor Ice company Start of a new industry

Ice growing industry in the 1800s -

1800s-1830s: Early development difficult Unprofitable Experimenting with different business models Ice was used mainly to preserve food 1840s: production of beer and packaging of meat 1850s: urban retailers

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1860s: home use Ice box developed 1865: 2/3 of homes in Boston had ice delivered By the mid 1800s it was a flourishing industry

Ice harvesting value/supply -

Used huge saws and carved out big blocks from up north Transported to the coast and then shipped all over the world The international market also had a huge demand for ice Not only US and Cuba, but all over the world Insulated Ice so 70% of the ice remained when delivered Complementary products surfaced – warehouses that could store ice for a long time, ice box, ice crushes

Sustaining innovation and growth -

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Doing what u do better Production: Ice-plows horse power, saws (steam) snow scrappers New ways of forming ice Distribution: Mechanical conveyors Uniform blocks Storage: Ice house, insulation (saw dust) able to store ice for years Price decrease: From 166 USD/ton (1817) to 25USD/ton (1834) Differentaion: Luxury brands – “Whenham Lake Ice” New applications and expanding markets: Breweries, meat processing, food distribution in general, homes Consuption patterns: Ice – cooling throughout the supply chain enabled consumption (in cities) of fresh food (fresh meat, fish, milked, fruits and vegetables) instead of preserved food like salting, spicing, smoking etc International trade flourished A growing and innovation ecosystem for production, dostrubution, and storage of ice

1880s: the natural ice industry -

A large important and growing part of the US economy 25 million tons shipped yearly (US) 100 000 people (US) …and belived to only be in its infancy BUT by 1920s it was destroyed! What happened?

Innovation – machine made ice -

Where?

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Not where the ice industry was strong (north), but in the south Price difference (125USD/ton in the south compared to 7USD/ton in the north) – ice was more expensive in the north Uncertain supply as well - transportation, ships unreliable Technological improvement: Improvement in compression technology and refrigerants (ammonia) led to substantially lowered cost and improved quality Around 1870s it was possible to mechanically produce ice for 35/USDton. Higher than natural ice, but price advantage in the south Improvements came faster, cost lowered, quality improved (eg. Clarity, smell) New entrants from e.g. steam enginge industry

But some decade later… -

Machine made ice industry also gone Localized electrical refrigerator: Predecessor: domestic ice boxes (suffered from dripping, odor) Mechanical (1900s) to gas powered (1910s) to electrical (1920s) using freon (1930) price driopped below 200 USD Supply US: from 5000 electrical refrigerators (1921) to plus one million Incumebnt Big Ice industry perceived the threat Changing business model (subsidized ice boxes) to lock in customers Anti-refrigerator campaigns, legal lobbying (accident prevention) and to be classified as public utility (to be subsidized) Commercial customers (brewers, fish, wholesalers, resturants etc.) made the transition first, followed by domestic users Not only production changed, but the whole distribution system Not only production changed, but the whole distribution system Ice industry (almost) disappeared 40% of the market disappeared in the first half of the 1930s.

Lesson: Innovation and creative destruction -

Joseph Schumpeter The economy goes through processes of creative destruction Innovation is the main driver in this process Creative: Innovation created wealth, economic growth and entrepreneurial opportunities Destruction: The old way of doing things destroyed. Entire industries are swept away. Incumbent firms have difficulties adapting Sometimes labelled as disruptive innovation Disruption in many industries (from ice-making, to calculators, typewriters, encyclopedias etc.) More and more frequent especially in industries that are digitized

Disruptive technologies (Christensen , 1997) -

There exists an established offering (VHS for example), then technical development happened (DVDs), and then bluerays which still served the same purpose: looking at movies. A disruptive offering starts often in a niche market, which can be hard for mature companies to spot. Crunchyrolls came in 2003, which was the first website where you could stream

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movies online (Japanese animation films) – small niche market. Small, not best quality, but stopped people from buying dvds – not the same quality and performance as dvds. Around the same time as blurays came in, Netflix appeared. Netflix started as a post order company, but realized the potential of crunchyroll, and they jumped on the bandwagon. Netflix is now the leading streaming subscription service, and blueray was bust Dispruptive technologies often starts as an underperforming technology but through development it starts outperforming the old established offering and becomes leading in their field Its hard for mature companies to spot the “gorilla” when it comes to new disruptive technologies

Drivers of the need for innovation: Goffin and Mitchell, 2017 – 5 drivers External: -

Technological advances Intensified competition Changing Business Environment Changing Customer and Needs

Internal: -

Strategic Intent

Patterns of Innovation -

Creative destruction / disruptive innovation Periods of growth and relative stability disrupted by innovation S-curves

Technology S-curve -

Improvement of technologies typically follow an s-curve S-curves in technological improvement Improves slowly at first because it is poorly understood, many failing paths, not much resources spent Then accelerates as understanding increases, commercial potential perceived Then slows down as limits are reached

Overlapping S-curves -

Old technologies be displaced by new, discontinuous technologies (often with partly new knowledge base E.g. carbon copying with photocopying, vinyl records to CDs New technologies (often) initially have lower performance than incumbent technology E.g. first automobiles where much slower than horse drawn carriages Incumbent firms (and customers) may be reluctant to adopt new technology Because performance improvement is initially slow and costly They man have significant investment in incumbent technology, don’t want to cannibalize

S-curves as prescriptive tool

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Managers can use s-curves for making choices (timing, inclusion of features, etc.) But beware!! Limits of technology may be unknown Shape of s-curve can be influenced by changes in the market, component technologies, or complementary technologies Firms that follow s-curve model too closely could end up switching technologies too soon or too late Often trade-offs between different performance parameters. Development change direction.

When transition happens… -

Being too late and missing the revolution (not good) Getting ready too soon and exhausting resource before the revolution begins (not good either) Why do some new technologies quickly supplant their predecessors while...